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Higher tax rate on cigarette would exacerbate legal sales: ITC

The legal cigarette industry has witnessed a 25% decline in volumes from FY12-13

Press Trust of India  |  New Delhi 

File photo of a shopkeeper selling cigarettes waits in his store at a market in Mumbai, India. Photo: Reuters
File photo of a shopkeeper selling cigarettes waits in his store at a market in Mumbai, India. Photo: Reuters

India's largest cigarette manufacturer on Thursday said that higher rate under the just introduced regime will "exacerbate" the pressure on the entire legal cigarette value chain.

The legal cigarette industry has witnessed a 25 per cent decline in volumes from FY 2012-13, said


"The additional burden caused by the increase in the Compensation Cess rates...Will exacerbate the pressure on the entire legal cigarette value chain in the country," said in its quarterly

The high incidence of taxation on was further compounded by the steep increase in taxes announced by the Council on July 17, 2017, it said.

"The increase in Compensation Cess on as announced by the Council ranges from Rs 485 to Rs 792 per thousand Under the 'Others' segment i.E. of length exceeding 75 mm (including the length of filter), a 31 per cent increase in the ad valorem component of the cess has been levied," said

The intent of the Council behind increasing the Compensation Cess was to correct an apparent anomaly in cigarette taxation under the new regime announced earlier, on account of the removal of the cascading effect of which existed in the pre-regime.

"However, such increase has resulted in significantly higher incidence on under the new regime compared to the pre-scenario which is not in keeping with the fundamental principle of revenue neutrality," it said.

In fact, the combined impact of increase in announced by the Union Budget 2017 and the recent increase in rates effected by the Council is estimated to result in an incremental burden of over 20% on the company.

"The cumulative growth in incidence on cigarettes, after cognising for the latest increase in Cess rates, stands at a staggering 202 per cent since 2011-12, i.e. The last six years," it added.

However, ITC, which have brands that include Wills Navy Cut, Gold Flake, Insignia, Kings and Classic said that despite the extremely challenging operating environment, it sustained its leadership position in the industry through focus on delivering world-class products, continuous innovation and value addition.

In Q1/FY 2017-18, ITC's revenue from increased 6.60 per cent to Rs 8,774.16 crore, from Rs 8,230.60 crore in the year-ago period.

First Published: Thu, July 27 2017. 21:28 IST
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